Royal Bank increased their fixed mortgage rates again by 0.25%….that’s an 0.85% increase in 2 weeks… Scotiabank increased their rates shortly afterwards. We can expect the other Major Banks to follow this latest increase.
What’s interesting about this move is that the bond market has not increased by the same amount…. On February 15th 2010, the 5 year Bond yield was 2.53%…today, it’s 3.08%….Mortgage Lenders and Banks want to earn a 1.20% to 1.30% spread in the wholesale mortgage market… Today’s best 5 year fixed rate mortgage is 4.39% but will increase to around 4.64%…. That puts the spread all the way up to a whopping 1.56%.
By the way, not all Lenders have increased their rates… there are still Lenders with rates in the 4.39% range but we should expect them to follow suit…
On April 19th, you might be forced to take a 5 year fixed rate mortgage….
There has been a lot of media talk about the new Mortgage Rules…. On April 19th, the rules for Borrower’s with less than 20% down payment will come into effect…. But let’s clarify…
There was an article in the Vancouver Sun last week that talked about an internal document that was distributed by CMHC to Mortgage Brokers… Here is a quote from that internal document:
“Clarification on Qualifying Interest Rate
Effective April 19, 2010, the qualifying interest rate used to assess borrower eligibility will change only for loans with a loan to value ratio (LTV) greater than 80% as follows:
Fixed Rate Mortgages and Variable Rate Mortgages: For loans with a fixed rate term of less than 5 years and for all variable rate mortgages, regardless of the term, the qualifying interest rate is the greater of the benchmark rate1, and the contract interest rate. For loans with a fixed rate term of 5 years or more, the qualifying interest rate is the contract interest rate.
Mortgages with Multiple Interest Rates (e.g. Multi-Component Mortgages): Each component must be qualified using the applicable criteria defined above.
1CMHC defines the benchmark rate as the Chartered Bank – Conventional Mortgage 5-year rate that is the most recent interest rate published by the Bank of Canada in the series V121764 as of 12:01 AM (Eastern Time) each Monday, and which can be found at: http://www.bankofcanada.ca/en/rates/interest-look.html“
Did anyone pick up on that….? Today’s best 5 year fixed rate is around 4.29%… If you take a 5 year fixed rate, then your mortgage is qualified using that rate… no problem… BUT, if you take a shorter term or a variable rate product, then you must qualify using the BANK POSTED rate which is 5.85% today.
Put another way, a $300,000 mortgage with a 25 year amortization requires an annual income of $74,000 if you selected a 5 year fixed rate or longer term….BUT what if you wanted shorter term or the popular Variable Rate product which is currently 1.75%? …then you would need to qualify with the BANK POSTED rate of 5.85% and that would require a household income of $84,000…..
I don’t know about you, but Variable Rate mortgages are still very attractive…it’s too bad many of us won’t be able to make that choice when we buy our next home…
Genworth Financial is kicking off the traditional Spring housing market with a week of Online seminars… Each day has a different theme….The goal is to educate prospective homebuyers and borrowers so they can make informed decisions….
The website is Homeownershiphelp.ca and here’s the schedule of events…
|WEDNESDAY APRIL 14
||Test Your Knowledge
||Tips on Purchasing and Owning a Home
|Learn the importance of good credit and how your credit history is established
||Find out how to reconcile what you want with what you can afford
||Understand the steps of home purchasing in Canada
||Take the Homebuyer 101 course
||Find out the fast facts that will help make your dream home a reality
Here’s some good news to end the week…
CIBC’s Avery Shenfeld was quoted as saying interest rates would remain low through 2011… hey, that’s a different message from what we’ve been hearing lately… complete article here..
CIBC has a good history when it comes to forecasting rates… And I think his forecast makes a lot of sense…
Some of the fundamentals for the forecast: an expected low inflation level, mixed in with 20% lower overall Canadian output compared with the peak of 2008…end result is less pressure for the Bank of Canada to raise rates as much or as quickly as we once thought…
But there are more factors that I think will cool our Economy somewhat…. HST coming in July… New Mortgage Rules coming into effect in a few weeks….continued slow Global recovery…. continued slow U.S. recovery…
Lower rates for longer period of time? Hmmmm…wonder how the media can turn that into a negative story….(sorry, couldn’t resist the sarcasm). Yes, it’s GOOD time to borrow money.. don’t let anyone tell you otherwise… these are historical lows….Enjoy!
(but before you go… It’s important to point out that Experts are expecting the Bank of Canada to raise their rate in June or July…. but that’s NOT a reason to panic or get nervous.. the Bank rate is at 0.25% and our Bank Prime is at 2.25%… these are both RECORD lows…we’ve never seen rates this low…..we must expect increases to come)
Canadian $ at par with the U.S. $
Today, the Canadian $ hit 100.12 cents briefly this morning…. A clear signal that the rest of the world is viewing Canada as having a very stable and solid economy…. Here’s an article with forecasts of the dollar remaining at these levels into next year….
But if the Canadian $ remains at these high levels, it puts pressure on the Bank of Canada not to raise the Bank rate as high or as quickly…. Any increase in the Bank rate will drive the Canadian $ higher…
5 Year Bond yields over 3.00%
The 5 year Canadian Bond yields jumped to over 3.00% for the first time since October 2008… That’s the same time the U.S. Sub-Prime mortgage crisis hit and the world fell into a recession. Bond yields affect fixed rates…..current 5 year fixed rates are hovering between 4.19% and 4.39%… today’s Banks and Mortgage Lenders are looking for a 1.20% to 1.30% spread and we are that level… Further increases in the Bond yield will cause fixed rates to go up….